BUSINESS AS P2

• Business plan


  A plan for the development of a business, giving details such as the products to be made, resources needed & forecasts such as costs, revenues & cash flow
• Business plan


  A written document by the business regarding its operations
• Relevance of a business plan

  • It is needed to support applications for finance, both at the start-up stage & in the future
  • Lenders & other investors are not likely to put money into a business unless the owners can provide a clear, concise vision of future progress & profitability
  • Investors will want to know how their money is going to be spent & when & how they are going to benefit from their investment
• Uses of a business plan

  • To show a clear direction for the development of a business
  • Help show lenders & investors that the owner is cautious, responsible, serious & credible
  • To flag up potential problems in advance so that investors are aware & solutions can be found
• Contents of a business plan


  • An executive summary
  • The business opportunity
  • Financial forecasts
  • The business & its objectives
  • Personnel
  • Finance
  • Premises & equipment
• Internal finance


  Money generated by the business/its current owners
• Types of internal finance

  • Owner's capital
  • Retained profit
  • Sale of assets
• Owner's capital


  The money provided by the owners in a business
• Retained profit


  The profit after tax (corporation tax) that is put back into business & not returned to the owners
• Pros of internal finance

  • The capital is available immediately
  • Internal finance is cheap
• Cons of internal finance

  • Internal finance can be limited
  • Internal finance can be inflexible compared to external sources of finance
• External finance


  Money raised from outside the business
• External sources of finance


  • Family & friends
  • Banks
  • Peer to Peer Lending (P2PL)
  • Business angels
  • Crowd funding
  • Other businesses
• Peer to Peer Lending (P2PL)

  Involves people lending money to unrelated individuals/'peers' & therefore avoiding the use of a bank
• Business angels


  Individuals who typically may invest between £10,000 & £100,000+, often exchange for a stake in a business
• Crowd funding


  Where a larger number of individuals (the crowd) invest in a business/project on the internet, avoiding the use of a bank
• Methods of finance


  • Loans
  • Share capital
  • Venture capitalists
  • Bank overdraft
  • Leasing
• Loans


  An arrangement where the amount borrowed must be repaid over a clearly stated period of time, in regular instalments
• Types of loans


  • Bank loans
  • Mortgages
  • Debentures
• Share capital


  For a limited company, share capital is likely to be the most important source of finance
• Venture capitalists


  A company / an individual who will get money from rich people & huge businesses & that company will give the money to start up businesses who borrows for finance
• Bank overdraft


  Means that a business can spend more money than it has in its account
• Leasing


  A contract in which a business acquires the use of resources such as property, machinery/equipment, in return for regular payments
• Venture capitalist


  Keeps interest for themselves & gives some back to rich people & huge businesses
• Bank overdraft


  • The bank & the business will agree on an overdraft limit & interest is only charged when the account is overdrawn
  • Flexible source of funding to businesses
  • The bank will only agree to let others overdrawn if they are loyal customers & if the bank knows that they can return the money & pay the interest
  • The bank has the legal right to call in the money owed at any point in time if the bank suspects that the business is struggling & unlikely to repay what is owed
• Temporary change of ownership


  Long term rent
• Pros of Leasing


  • No large sums of money are needed to buy the use of equipment
  • Leasing is useful when equipment is only required occasionally
• Cons of Leasing

  • Over a long period of time leasing is more expensive than the outright purchase of plant & machinery
  • Loans cannot be secured on assets which are leased
• Trade credit


  Common for businesses to buy raw materials, components & fuel & pay for them at a later date, usually within 30-90 days
• Pros of Trade credit

  • Business will be able to get their goods early without having to pay for it
  • If businesses pay early through cash, it will be cheaper because there will be discount
• Cons of Trade credit

  • If businesses will pay through credit, it will be more expensive
  • Delaying the payment of bills can also result in poor business relations with suppliers
• Grants


  • Usually given by the government to help small businesses without interest
  • Most grants do not have to be repaid, so this type of external finance is a significant advantage
• Credit


  Not paying now but will pay in the future
• Sole Trader/ Sole Proprietor


  • Simplest form of business organisation
  • Has one owner but can employ any number of people
  • All sole traders have unlimited liability
• Unlimited Liability


  • Business does not have its own identity
  • Owners who have unlimited liability will have to sell its assets for investment/ bankruptcy
• Pros of Sole Traders

  • The owner keeps all the profit
  • The business is independent & the owner has complete control
  • The business is simple to set up, with no legal requirements
• Cons of Sole Traders

  • Owner has unlimited liability
  • The owner & any employees are likely to work very hard, with long hours
  • The owner may struggle to raise finance, as lenders may consider them too risky to offer credit
• Partnership


  • Has more than one owner
  • There are no legal formalities to complete when a partnership is formed
• Deed of Partnership


  • Legal document which state partners' rights in the event of a dispute/disagreement
  • Cover issues such as how much capital each partner will contribute, how profits & losses will be shared amongst the partners, how much control each partner has, etc.
  • Is not mandatory but important if disputes arise
• Limited Partnerships


  • Where some partners provide capital but take no part in the management of the business
  • Partner can only lose the original amount of money invested